Bond investors were understandably nervous entering 2017. The market had just come off a significant post-election selloff as interest rates rose sharply across the yield curve. Growth and inflation expectations were increasing and many market commentators prognosticated that rates were destined to keep rising and bond prices were destined to keep falling. Our view was a bit more nuanced, however, as was highlighted by a key passage from our January market outlook:

Could rates move higher during certain periods of 2017? Sure. Will the bond market enter a sustained bear market where yields correct sharply to the upside? Unlikely. And even if rates do move higher over the course of the year, bond investors can still make a positive return with relatively low levels of volatility because of the income generation bonds provide.

As we enter the second half of 2017, this view has held. Bond market returns have been positive and volatility has been low, making risk adjusted returns look quite strong.